One year after Jeffrey R. Immelt’s quarter horribilis—when the General Electric Chairman and CEO shocked Wall Street with a wide earnings miss that left investors reeling—the GE chief beat analyst expectations this time around. The Fairfield, Conn.-based conglomerate posted first quarter earnings per share on April 17 of $0.26, beating analysts’ $0.21 consensus.
Still, that hardly spelled out stellar results. First quarter earnings of $2.8 billion were down 35% from the year prior and sales for the embattled giant were $38.4 billion, down 9% from the year before. The primary culprit: GE Capital, the company’s large financial unit, which weighed down overall results. While GE met its forecast that the struggling finance unit would be profitable in the first quarter, that outcome was helped by tax benefits. Earnings for GE Capital were $1.1 billion in the fourth quarter, down 58% from the year before. But on a pre-tax basis, the unit actually lost about $150 million, analysts noted. GE shares initially fell but were roughly flat in early trading.
Other disappointments included the company’s media unit, NBC Universal, where earnings were down 45% from the year prior. Struggling consumers aren’t queuing up at its theme parks or snatching up home videos, and pain in the company’s broadcast division offset strong cable performance. The healthcare and transportation businesses were down too, with profits down 22% and 15% for the quarter respectively. GE Capital, of course, posted some painful numbers, with commercial real estate and U.K. mortgage markets deteriorating.
The bright spots? GE’s energy, oil & gas and aviation units, which each posted double-digit profit growth. That’s good news given these businesses’ cash-generating power, which should help to quiet debates over further dividend cuts or needs to raise capital, analysts noted. Still, the recession is taking its toll, with orders for GE’s energy equipment down in the first quarter. Stimulus infrastructure projects should help, but most of the benefits to GE won’t be felt until 2010 or later, says Immelt, who sees $100 billion in potential opportunities for GE from global government stimulus spending. CFO Keith Sherin also noted that delinquencies in its North American consumer business were stabilizing, a good sign despite rising unemployment.
The first quarter of 2009 will be memorable for the 130-year old company for reasons beyond its earnings results, however. Not only did GE lose its vaunted AAA credit rating, which it had held for more than five decades, it also slashed its dividend 68% for the first time since 1938. Investors fretting over whether the finance unit would need to raise outside capital drove GE’s share price to below $6 earlier this year. Since then, the share price has recovered to $12, buoyed in part by an extensive review of the company’s GE Capital business on March 19, when company executives took investors through some 170 detailed Powerpoint slides and reiterated that they see no need for outside funding from GE Capital.
In the end, notes Credit Suisse analyst Nicole Parent, it’s hard to tell whether the first quarter earnings show a glass half empty or half full. Results “were not disastrous,” she wrote in a research note, and showed few surprises. While that may not exactly be a compliment, it’s not bad for this environment, either. Noted Morgan Stanley analyst Scott Davis: “We found very little surprising in GE’s 1Q results - which in itself is a positive.”
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